Question

Marco Chip, Inc. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 9 years and a yield to maturity of 7.01 percent, compounded semi-annually. What is the current price of the bond?

Please show the work as you'd enter it into excel/what formula is used/etc.

Answer 1

	CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY
	Step 1 : Calculation of Annual Coupon Payments
	Par value of the bond issued is   =			$1,000
	Annual Coupon %			0.00%
	Annual Coupon Amount			$0.00
	Semi Annual Coupon Amount			$0.00
	Step 2: Calculate number of years to Maturity
	Number of years to maturity = 9 years
	Interest is paid semi annyally so total period = 09*2 = 18
	Step 3 : Caclulation of Current Market Price (intrinsic value) of the bonds
	Market rate of interest or Yield to Maturity or Required Return = 7.01%
	Bonds interest is paid semi annualy means so discounting factor = 7.01 % /2= 3.505%
	PVF = 1 / Discount rate = 1/ 1.03505
	Result of above will again divide by 1.03505 , repeated this upto last period
	Period	PVF @ 3.505%
	1	0.9661
	2	0.9334
	3	0.9018
	4	0.8713
	5	0.8418
	6	0.8133
	7	0.7857
	8	0.7591
	9	0.7334
	10	0.7086
	11	0.6846
	12	0.6614
	13	0.6390
	14	0.6174
	15	0.5965
	16	0.5763
	17	0.5567
	18	0.5379
	So Present value of the $ 1 at the end of Period 18th = 0.5379
	Present value of the Bonds = $ 1000 X 0.5379
	Present value of the Bonds =		$537.89
	Answer = Present Value of the Bonds = $ 537.89